In his monetary theory, Mises revived the long forgotten British Currency School principle, prominent until the 1850s, that society does not at all benefit from any increase in the money supply, that increased money and bank credit only causes inflation and business cycles, and that therefore government policy should maintain the equivalent of a 100 percent gold standard.
Mises added to this insight the elements of his business cycle theory: that credit expansion by the banks, in addition to causing inflation, makes depressions inevitable by causing βmalinvestment,β i.e. by inducing businessmen to overinvest in βhigher ordersβ of capital goods (machine tools, construction, etc.) and to underinvest in consumer goods.
The problem is that inflationary bank credit, when loaned to business, masquerades as pseudo-savings, and makes businessmen believe that there are more savings available to invest in capital goods production than consumers are genuinely willing to save. Hence, an inflationary boom requires a recession which becomes a painful but necessary process by which the market liquidates unsound investments and reestablishes the investment and production structure that best satisfies consumer preferences and demands.
Mises, and his follower Hayek, developed this cycle theory during the 1920s, on the basis of which Mises was able to warn an unheeding world that the widely trumpeted βNew Eraβ of permanent prosperity of the 192Os was a sham, and that its inevitable result would be bank panic and depression. When Hayek was invited to teach at the London School of Economics in 1931 by an influential former student at Misesβs private seminar, Lionel Robbins, Hayek was able to convert most of the younger English economists to this perspective. On a collision course with John Maynard Keynes and his disciples at Cambridge, Hayek demolished Keynesβs Treatise on Money, but lost the battle and most of his followers to the tidal wave of the Keynesian Revolution that swept the economic world after the publication of Keynesβs General Theory in 1936.
The policy prescriptions for business cycles of Mises-Hayek and of Keynes were diametrically opposed. During a boom period, Mises counseled the immediate end of all bank credit and monetary expansion; and, during a recession, he advised strict laissez-faire, allowing the readjustment forces of the recession to work themselves out as rapidly as possible.
Not only that: for Mises the worst form of intervention would be to prop up prices or wage rates, causing unemployment, to increase the money supply, or to boost government spending in order to stimulate consumption. For Mises, the recession was a problem of under-saving, and over-consumption, and it was therefore important to encourage savings and thrift rather than the opposite, to cut government spending rather than increase it. It is clear that, from 1936 on Mises was totally in opposition to the worldwide fashion in macroeconomic policy.
Imagine life as a big race where everyone is running. But hereβs the thing: each person has their own track and their own speed. Itβs like everyoneβs running their own special race.
Now, why is it important to stick to your own track and not worry about how fast others are going?
Well, think about it this way:
β if you keep looking at how fast others are running, you might trip and fall. You might lose focus on where youβre going. Plus, everyone has different strengths and weaknesses. Some people might be really fast at the start, but they get tired quickly. Others might start slow but finish strong.
When you run your own race at your own pace, youβre focusing on whatβs best for you. Youβre not comparing yourself to others or trying to be something youβre not. Youβre giving yourself the chance to grow and improve in your own time, without feeling pressured by what everyone else is doing.
So, always remember:
β itβs okay to take things at your own speed.
Trust yourself, stay true to your path, and enjoy the journey, no matter how fast or slow it may be.
